MRO Magazine

KMG Reports Third Quarter 2015 Financial Results


June 9, 2015
By Business Wire News

HOUSTON

KMG Chemicals, Inc. (NYSE: KMG), a global provider of specialty chemicals, today announced financial results for the fiscal 2015 third quarter ended April 30, 2015.

2015 Third Quarter Financial Highlights

  • Consolidated net sales were $74.0 million, a 12% decrease from last year’s third quarter. Sales declined due to the divestiture of the creosote business in January.
  • Adjusted EBITDA1 increased to $9.1 million, up 20% from $7.6 million in last year’s third quarter.
  • Adjusted diluted earnings per share2 was $0.35 vs. $0.20 per share reported in the prior year’s third quarter.
  • GAAP EPS was $0.18 vs. $0.11 per share in the third quarter of fiscal 2014.
  • Long-term debt balance at quarter end was $35 million, down from $39 million in the second quarter of fiscal 2015. During the third quarter, the company used cash generated from operations to reduce debt.

Chris Fraser, KMG chairman and chief executive officer, said, “KMG had another solid quarter, reflecting continued strength in our North American Electronic Chemicals business and improved efficiency from the streamlining of our manufacturing operations, along with solid performance from our penta business. Adjusted EBITDA improved 20% from the same period last year, representing the fifth consecutive quarter of double-digit growth on a year-over-year basis.

Mr. Fraser concluded, “We’re excited about our recent acquisition of Val-Tex, which provides KMG with an attractive new growth platform in the profitable and established market for industrial valve lubricants and sealants. As previously indicated, Val-Tex will be accretive to our fourth fiscal quarter adjusted EBITDA and adjusted diluted earnings per share. Consequently, we have increased our fiscal 2015 adjusted EBITDA guidance range to $35-37 million, from $34-36 million previously.”

         

Third Quarter Results

Dollars in thousands, except EPS

Fiscal 2015 Fiscal 2014
(unaudited) Adjusted As Reported Adjusted As Reported
(non-GAAP)   (GAAP) (non-GAAP)   (GAAP)
 
Net Sales $ 73,964 $ 73,964 $ 84,437 $ 84,437
Operating Income 6,299 4,761 4,333 2,914
Operating Margin 8.5 % 6.4 % 5.1 % 3.5 %
Net Income 4,099 2,135 2,388 1,226
Diluted EPS $ 0.35 $ 0.18 $ 0.20 $ 0.11
 

Business segment results

Electronic Chemicals

       

Third Quarter Results

Dollars in thousands Fiscal 2015 Fiscal 2014
As Reported Adjusted As Reported
(GAAP) (non-GAAP)   (GAAP)
 
Net Sales $ 66,388 $ 61,542 $ 61,542
Operating Income 6,644 3,429 3,175
Operating Margin 10.0% 5.6% 5.2%
 

For the third fiscal quarter, the Electronic Chemicals segment reported:

  • Sales of $66.4 million, up 7.9% from $61.5 million in the same period a year ago. Excluding the impact of foreign currency, third quarter fiscal 2015 sales were $70.5 million. The increase in reported sales reflects higher sales volume for high purity process chemicals in North America, partially offset by weakness in Europe.
  • Adjusted EBITDA3 of $9.4 million, compared to $6.6 million last year. Foreign currency translation negatively impacted third quarter fiscal 2015 adjusted EBITDA by $400,000.
  • GAAP operating income of $6.6 million vs. $3.2 million in the same period of fiscal 2014. Operating income improved due to increased sales volume, as well as benefits from the restructuring of our electronic chemicals operations.
     

Wood Treating Chemicals

Third Quarter Results

Dollars in thousands Fiscal 2015 Fiscal 2014
As Reported As Reported
(GAAP) (GAAP)
 
Net Sales $ 7,566 $ 22,851
Operating Income 2,276 2,092
Operating Margin 30.1 % 9.2 %
 

For the third fiscal quarter, the Wood Treating Chemicals segment reported:

  • Sales of $7.6 million, versus $22.9 million in the same period a year ago. The sales decline reflects the divestiture of the creosote product line in January.
  • EBITDA4 of $2.3 million, up from $2.2 million last year.
  • Operating income of $2.3 million, or 30.1% of sales, compared to $2.1 million, or 9.2% of sales, last year. The increase in operating income was due to higher shipment volume and lower input costs in our Penta business, and the margin improved primarily due to the absence of creosote sales.

Outlook

  • We narrow our fiscal 2015 consolidated net sales forecast to approximately $320 million versus our prior forecast of $315-325 million. Relative to the prior year, fiscal 2015 sales reflect growth in the Electronic Chemicals segment and the addition of Val-Tex, with lower sales in the Wood Treating Chemicals segment due to the divestiture of the creosote product line.
  • We increase our fiscal 2015 adjusted EBITDA forecast to $35-37 million, from $34-36 million previously. The increase in our adjusted EBITDA forecast includes the addition of Val-Tex.
  • Fiscal 2015 depreciation and amortization expense is forecast to be approximately $14 million, excluding restructuring and realignment charges.
  • Fiscal 2015 capital expenditures are forecast to be approximately $16 million, unchanged from our prior forecast. Capital expenditures include expenses related to our ERP system implementation, UPC integration and asset investments to support increased shipment volume in our Electronic Chemicals business.

Conference call
Date: Tuesday, June 9, 2015
Time: 5:00 p.m. ET
Dial in:877-440-1760 or 678-509-7570
Conference ID: 51067980
The conference call will be webcast live via the “Investors” section of the Company’s website at http://kmgchemicals.com.

If you are unable to listen live, the conference call will be archived on the KMG website. A telephone replay of the call will also be available for one week, starting at 8:00 p.m. ET on June 9, 2015. To access the call, dial 855-859-2056 or 404-537-3406 using Conference ID 51067980.

About KMG

KMG Chemicals, Inc., through its subsidiaries, produces and distributes specialty chemicals to select markets. The Company grows by acquiring and optimizing stable chemical product lines and businesses with established production processes. For more information, visit the Company’s website at http://kmgchemicals.com.

The information in this news release includes certain forward-looking statements that are based upon assumptions that in the future may prove not to have been accurate and are subject to significant risks and uncertainties, including statements as to the future performance of the company. Although the company believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Factors that could cause results to differ include, but are not limited to, successful performance of internal plans, product development acceptance, the impact of competitive services and pricing and general economic risks and uncertainties.

1 Non-U.S. GAAP measure. See Table 1 for reconciliation.
2 Non-U.S. GAAP measure. See Table 2 for reconciliation.
3 Non-U.S. GAAP measure. See Table 1 for reconciliation.
4 Non-U.S. GAAP measure. See Table 1 for reconciliation.

       
KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except for per share amounts)
 
 
Three Months Ended Nine Months Ended
April 30,   April 30,  
2015 2014 2015 2014
 
 
Net sales $ 73,964 $ 84,437 $ 244,505 $ 262,250
Cost of sales   47,149     59,672     161,544     186,728  
Gross profit   26,815     24,765     82,961     75,522  
 
Distribution expenses 11,700 11,975 37,721 36,979
Selling, general and administrative expenses 9,257 8,815 28,164 29,085
Restructuring charges 27 1,061 900 5,092
Realignment charges   1,070  

    5,429  

 
Operating income   4,761   2,914   10,747   4,366
 
Other income (expense)
Interest expense, net (111 ) (926 ) (1,098 ) (2,250 )

Gain (loss) on sale of creosote distribution business, net

(234 ) 5,448
Other non-operating expense (1,250 ) (1,250 )
Other, net   (339 )   (105 )   (498 )   (540 )
Total other income (expense), net   (1,934 )   (1,031 )   2,602     (2,790 )
 
Income before income taxes 2,827 1,883 13,349 1,576
Provision for income taxes   (692 )   (657 )   (4,539 )   (1,742 )
Net income (loss) $ 2,135   $ 1,226   $ 8,810   $ (166 )
 
Earnings per share:
Net income (loss) per common share basic $ 0.18 $ 0.11 $ 0.75 $ (0.01 )
Net income (loss) per common share diluted $ 0.18 $ 0.11 $ 0.75 $ (0.01 )
 
Weighted average shares outstanding:
Basic 11,680 11,634 11,669 11,606
Diluted 11,819 11,673 11,758 11,606
     

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share amounts)

 
April 30, July 31,
2015 2014
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 6,840 $ 19,252
Accounts receivable

Trade, net of allowances of $143 at April 30, 2015 and $272 at July 31, 2014

38,428 40,176
Other 3,572 1,904
Inventories, net 38,995 45,268
Current deferred tax assets 1,351 1,577
Prepaid expenses and other   3,873   3,476
Total current assets   93,059   111,653
Property, plant and equipment, net 80,702 92,450
Deferred tax assets 442 442
Goodwill 11,146 12,595
Intangible assets, net 20,911 28,353
Restricted cash 1,000 1,000
Other assets, net   4,860   4,365
Total assets $ 212,120 $ 250,858
 

Liabilities and stockholders’ equity

Current liabilities
Accounts payable $ 30,057 $ 36,690
Accrued liabilities 14,605 16,986
Employee incentive accrual   4,238   4,575
Total current liabilities   48,900   58,251
Long-term debt, net of current maturities 35,000 60,000
Deferred tax liabilities 5,146 9,881
Other long-term liabilities   1,881   2,520
Total liabilities   90,927   130,652
Commitments and contingencies
Stockholders’ equity

Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued

Common stock, $0.01 par value, 40,000,000 shares authorized, 11,680,940 shares issued and outstanding at April 30, 2015 and 11,649,001 shares issued and outstanding at July 31, 2014

117 116
Additional paid-in capital 30,866 28,886
Accumulated other comprehensive income (loss) (8,107 ) 645
Retained earnings   98,317   90,559
Total stockholders’ equity   121,193   120,206
Total liabilities and stockholders’ equity $ 212,120 $ 250,858
   

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 
Nine Months Ended
April 30,
2015   2014
Cash flows from operating activities
Net income (loss) $ 8,810 $ (166 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities

Depreciation and amortization 9,951 10,422
Non-cash restructuring and realignment charges 5,640 1,720
Amortization of loan costs 111 45
Stock-based compensation expense 1,970 1,777
Bad debt expense

89
Allowance for excess and obsolete inventory 760 33
Gain on disposal of property

(14 )
Gain on sale of creosote distribution business (5,448 )

Deferred income taxes (4,374 ) 751
Tax benefit from stock-based awards (10 ) (328 )
Changes in operating assets and liabilities

Accounts receivable — trade

95 1,906

Accounts receivable — other

(1,756 ) 538
Inventories 965 7,277
Other current and noncurrent assets (1,386 ) 389
Accounts payable (4,897 ) (3,916 )
Accrued liabilities and other   (2,219 )   5,383
Net cash provided by operating activities   8,212   25,906
 
Cash flows from investing activities

 

Additions to property, plant and equipment (10,751 ) (7,133 )
Disposals of property, plant and equipment 2,561 39
Proceeds from sale of creosote distribution business   14,899  

Net cash provided by (used in) investing activities   6,709   (7,094 )
 
Cash flows from financing activities

 

Net payments under revolving credit agreement (41,100 ) (13,000 )
Principal payments on term loan (20,000 )

Borrowings under New Credit Facility 59,100

Payments under New Credit Facility (23,000 )

Tax benefit from stock-based awards 10 328
Payment of dividends   (1,050 )   (1,043 )
Net cash used in financing activities   (26,040 )   (13,715 )
 
Effect of exchange rate changes on cash   (1,293 )   356

 

 
Net (decrease) increase in cash and cash equivalents (12,412 ) 5,453

 

 
Cash and cash equivalents at beginning of period   19,252   13,949

 

Cash and cash equivalents at end of period $ 6,840 $ 19,402
 

Reconciliation of non-GAAP financial measures to GAAP financial measures

KMG provides non-GAAP financial information to complement reported GAAP results. KMG believes that analysis of our financial performance would be enhanced by an understanding of the factors underlying that performance and our judgments about the likelihood that particular factors will repeat. To provide for more accurate comparisons of the company’s operating performance, KMG’s non-GAAP financial measures exclude from current results: the gain on the sale of the creosote business; expenses related to acquisition and integration; restructuring and realignment of the Electronic Chemicals business; CEO transition expenses; and accruals related to environmental site cleanup. KMG intends to continue to provide certain non-GAAP financial information and the appropriate reconciliation to GAAP in its financial results. As required by SEC rules, the tables below present a reconciliation of our presented non-GAAP measures to the most directly comparable GAAP measures. These non-GAAP measures should be viewed as a supplement to, and not a substitute for, U.S. GAAP measures of performance.

         

Table 1

RECONCILIATION OF OPERATING INCOME TO EBITDA AND ADJUSTED EBITDA
(In thousands)
 

Third Quarter Fiscal 2015

Electronic Wood Treating
Chemicals   Chemicals   Corporate   Total
 
Operating Income (Loss) $ 6,644 $ 2,276 ($4,159 ) $ 4,761
Other income (expense) (193 ) (37 ) (109 ) (339 )
Depreciation and amortization   2,983       93     818       3,894  
EBITDA 9,434 2,332 (3,450 ) 8,316
 
Acquisition & integration expenses 441 441
Restructuring & realignment charges*             388       388  
Adjusted EBITDA $ 9,434     $ 2,332     ($2,621 )   $ 9,145  
* Excludes depreciation
 
 

Nine Months Ended April 30, 2015

Electronic Wood Treating
Chemicals   Chemicals   Corporate   Total
Operating Income (Loss) $ 16,335 $ 6,456 ($12,044 ) $ 10,747
Other income (expense) (76 ) (90 ) (332 ) (498 )
Depreciation and amortization   9,311       286     5,994       15,591  
EBITDA 25,570 6,652 (6,382 ) 25,840
 
Acquisition & integration expenses 441 441
Restructuring & realignment charges*             689       689  
Adjusted EBITDA $ 25,570     $ 6,652     ($5,252 )   $ 26,970  
* Excludes depreciation
 
 
 

Third Quarter Fiscal 2014

Electronic Wood Treating
Chemicals   Chemicals   Corporate   Total
 
Operating Income (Loss) $ 3,175 $ 2,092 ($2,353 ) $ 2,914
Other income (expense) (81 ) 24 (48 ) (105 )
Depreciation and amortization   3,202       104     1,053       4,359  
EBITDA 6,296 2,220 (1,348 ) 7,168
 
Acquisition & integration expenses 254 104 358
Restructuring charges*             112       112  
Adjusted EBITDA $ 6,550     $ 2,220     ($1,132 )   $ 7,638  
* Excludes depreciation
 
 

Nine Months Ended April 30, 2014

Electronic Wood Treating
Chemicals   Chemicals   Corporate   Total
 
Operating Income (Loss) $ 9,508 $ 5,708 ($10,850 ) $ 4,366
Other income (expense) (385 ) (7 ) (148 ) (540 )
Depreciation and amortization   9,794       300     2,048       12,142  
EBITDA 18,917 6,001 (8,950 ) 15,968
 
Acquisition & integration expenses 914 104 1,018
CEO transition costs 1,280 1,280
Restructuring charges*             3,372       3,372  
Adjusted EBITDA $ 19,831     $ 6,001     ($4,194 )   $ 21,638  
* Excludes depreciation
         

Table 2

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
 

Third Quarter Fiscal 2015

Dollars in thousands, except EPS KMG Chemicals, Inc.
 
Operating Net Diluted Earnings

Income

Margin

Income

Per Share

Non-GAAP measure $ 6,299 8.5 % $ 4,099 $ 0.35
Restructuring & realignment charges (1,097 ) (1.5 %) (713 ) ($0.06 )
Acquisition & integration expenses (441 ) (0.6 %) (287 ) ($0.03 )
Gain on sale of creosote business 0.0 % (152 ) ($0.01 )
Environmental site cleanup reserve     0.0 %   (812 )   ($0.07 )
GAAP measure $ 4,761   6.4 % $ 2,135   $ 0.18  
 
 
Nine Months Ended April 30, 2015
Dollars in thousands, except EPS KMG Chemicals, Inc.
 
Operating Net Diluted Earnings

Income

Margin

Income

Per Share

Non-GAAP measure $ 17,517 7.2 % $ 10,482 $ 0.89
Restructuring & realignment charges (6,329 ) (2.6 %) (4,114 ) ($0.35 )
Acquisition & integration expenses (441 ) (0.2 %) (287 ) ($0.02 )
Gain on sale of creosote business 0.0 % 3,541 $ 0.30
Environmental site cleanup reserve     0.0 %   (812 )   ($0.07 )
GAAP measure $ 10,747   4.4 % $ 8,810   $ 0.75  
 
 
 

Third Quarter Fiscal 2014

Dollars in thousands, except EPS KMG Chemicals, Inc.
 
Operating Net Diluted Earnings

Income

Margin

Income

Per Share

Non-GAAP measure $ 4,333 5.1 % $ 2,388 $ 0.20
Restructuring charges (1,061 ) (1.2 %) (691 ) ($0.06 )
Restructuring income tax expense 0.0 % (238 ) ($0.02 )
Acquisition & integration expenses   (358 ) (0.4 %)   (233 )   ($0.01 )
GAAP measure $ 2,914   3.5 % $ 1,226   $ 0.11  
 
 
 
Electronic Chemicals Wood Treating Chemicals
Operating Operating

Income

Margin

Income

Margin

Non-GAAP measure $ 3,429 5.6 % $ 2,092 9.2 %
Integration expenses   (254 ) (0.4 %)       0.0 %
GAAP measure $ 3,175   5.2 % $ 2,092     9.2 %
 
 

Nine Months Ended April 30, 2014

Dollars in thousands, except EPS KMG Chemicals, Inc.
 
Operating Net Diluted Earnings

Income

Margin

Income (Loss)

(Loss) Per Share

Non-GAAP measure $ 11,756 4.5 % $ 6,295 $ 0.54
Restructuring charges (5,092 ) (1.9 %) (4,965 ) ($0.42 )
Integration expenses (1,018 ) (0.4 %) (663 ) ($0.06 )
CEO transition costs   (1,280 ) (0.5 %)   (833 )   ($0.07 )
GAAP measure $ 4,366   1.7 % $ (166 )   ($0.01 )
 
 
 
Electronic Chemicals Wood Treating Chemicals
Operating Operating

Income

Margin

Income

Margin

Non-GAAP measure $ 10,422 5.6 % $ 5,708 7.6 %
Integration expenses   (914 ) (0.5 %)       0.0 %
GAAP measure $ 9,508   5.1 % $ 5,708     7.6 %

KMG Chemicals, Inc.
Eric Glover, 713-600-3865
Investor Relations Manager
eglover@kmgchemicals.com